The eminis completed a Gartley Pattern based on the Jun 19 high (purple pattern) overnight that saw a second tag of the purple channel bottom (from 1343 in Nov 2012.)  This pattern could rule the roost, though with the breakout of the red channel the reaction could be limited to a backtest of that pattern.

With the .500 reversal on the white grid on Jul 1, a Bat Pattern at 1670 remains a possibility down the road.  As last night’s tag #2 illustrates, the backtest of a broken rising channel doesn’t always mean lower prices ahead.

The dollar is at a critical point — having reached the top of the purple channel and pushing through to the top of the yellow channel.

I’ll go long on the opening, but don’t be surprised if SPX doesn’t simply tag our target and reverse.

UPDATE:  09:32 AM

SPX just pushed through Monday’s high, but tagged the midline of the yellow channel and should reverse here at 1627.  I’ll switch to short and see how much of a retracement it can put in.  Perhaps 1620-1621?  Stops at 1627ish.

This is likely a backtest of the broken white channel midline, so higher prices are likely in store for those who are patient.

Note that by topping Monday’s high, SPX just cleared two bearish short-term harmonic patterns from the chart.  The prominent patterns left on the red grid (from 1654.19) are the Gartley or Bat Patterns at 1634.1 and 1643.49 respectively.

On the grey grid, Monday’s high already retraced .500 of the drop from 1687 to 1560.  So, the next significant target is the .618 at 1638.72.

As we discussed when we went long Wednesday at 1605 [see: Fireworks Ahead]:

That’s why I won’t be surprised if, while no one’s watching on Friday, we reach 1638 — the .618 of the 1687 to 1560 correction.

A close today at 1618  — .618 of the decline since 1626 on Monday and the intersection of the falling red channel top and rising white channel midline — would set up a nice looking right shoulder targeting the downside.

But, it would also set up a Crab Pattern with a 1.618 extension at 1640.23, less than two points from the grey .618.  Something to think about…

A push through 1629ish negates the potential H&S pattern setting up (in red) as the right shoulder would exceed the head.

UPDATE:  10:05 AM

I think that’s probably going to do it for the pause.  I’ll go long again here at 1621 with stops at 1620ish.

A drop to 1615-1616 would better establish a backtest of the red channel and also a right shoulder for the IH&S in the works (targeting 1650ish.)  So, set your stops at what works for you.

UPDATE:  10:15 AM

Just fell through our stops, so short again at 1620 for a likely trip to the purple channel bottom.

All SPX needs to do is loiter here just long enough to make the IH&S obvious.  Though, it could also decide to deal with this morning’s gap (1615.17?) while it’s in the neighborhood.

UPDATE:  10:24 AM

That’s good enough for me.  Back to a full long position here at 1614.77 with stops at 1609ish (.25 of white channel.)

Here’s a better look at the IH&S I mentioned in the 10:05 update (in purple below.)  Note that this morning’s gap is no more…

UPDATE:  1:35 PM

The downside risk, BTW, is that the bottom of the rising white channel (currently about 1600) still hasn’t been tested.  I’ll raise my stop on the long position to 1614ish.

I’m changing the color of the rising white channel to red, since it exactly matches the slope of the red channel that set up in the big rising purple channel from 1343.  It tacked on 151 points between Apr 18 through May 22 — about 10% in one month.

It first established its bottom at 45 points higher than the 1536 bottom after a 16 point pullback from the initial 61 point rise to 1597.  This morning’s high was 67 points higher than the 1560 low, and a 16 point pull back would put it at about 1611.

Applied to the current chart patterns, this would probably translate into a backtest of the broken red channel and/or a tag of the bottom of the rising red channel on Monday.  If the market simply kills time for the next 3 hours and closes at or near the neckline (1628.45?) of the nearly completed purple IH&S, this is a very reasonable scenario.

The current purple channel, IMO, is a bit of a stretch.  It has only held the job for a few days — since multiple predecessors were fired for incompetency.  There’s no reason to believe this one will last any longer.

UPDATE:  2:25 PM

SPX just closed the gap from Jun 19.   I’ll likely close my long position here and go short on the first sign of serious weakness.  But, if it can push through, the red .786 is just ahead at 1634 and the yellow IH&S target at 1632.

I’ll keep an eye on the USDJPY, which at only .50 below the .786 retrace of 103.72 to 93.78, is probably a very good indicator.  From the 12:13 PM update to the Jun 28 post:

USDJPY is pushing up toward the .786 retracement of its drop from its May 22 103.72 highs. Conspicuously, the intersection of the white channel midline and the .75 line of the yellow channel I show taking over is at that price (101ish) on about July 4.

UPDATE:  3:15 PM

For anyone who hasn’t yet had the chance, yesterday’s post regarding May 2013 has some interesting data regarding the ramp jobs that have become endemic over the past several months.

I knew they were responsible for much of the market’s upside lately.  But, I hadn’t realized they were responsible for all of it — and then some.

The trend continued in June, though I haven’t tallied the total yet.  Bottom line, there is a whole lot of manipulation going on.  Today’s close and tomorrow morning’s opening will probably play into it.

UPDATE:  3:25 PM

SPX just broke through the bottom of the rising white channel and the red midline at 1626.13.  This drop should stop by 1624 or so.  Any lower and I’ll probably change sides or at least get some protection going.

SPX looks like it intends to close at our near the neckline (1629) as we discussed earlier.  I’ll take a few minutes and discuss my expectations for the next week or two.

Before I do, I want to mention that there are three annual memberships left from the sale earlier this week.  I’ll update prices on the website this afternoon, so anyone who’s been thinking about it…here’s your last call to save $800.

continued for members… (more…)

After whipsawing back and forth for most of April, the market charged ahead in May with single-minded focus.  SPX was up nearly 6% at its peak, but gave up most of it to end the month only 2% ahead.

The red acceleration channel set up within the purple channel and caught many, including yours truly, by surprise.  There were only three negative sessions between May 1 and the 1687 top on May 22.

It wasn’t for lack of opportunities.  Many times, the market would close on the cusp of a downturn motivated by normally reliable patterns.  But, in almost every instance, an overnight ramp job would come to the rescue and the market would blow right through the resistance on the opening bell.

May’s reliance on overnight ramp jobs for net gains was truly stunning.  The following chart compares the total points attributable to gaps up and the subsequent hour of trading to the net points gained for each of the past three months.

May consisted of 22 sessions for a total of 143 hours of trading.  The net loss for 95% of those hours was 65 points, or -4.1%.

The other 5% of trading hours — the 7 times the market gapped up on the opening — added 100 points for a net gain of 2.2% on the month.

Throw in March and April, and the “bull market” begins to look every bit the product of gimmickery:  it  took 200 points of ramp jobs since the end of February for SPX to gain 172 points to the 1687 high.  Two more gaps up occurred during the late May decline for a combined 230 points expended…to produce a net 115-pt gain.

I backed off holding positions overnight — even though it meant for greater trading volume.  I’m a swing trader by nature.  I like big 50-75 pt swings over a week or two.  But, I was sucked into bearish setups way too many times — only to wake to a 15 point overnight ramp job.  The 60-min chart below shows many such instances.

The upshot: way more trades than I would have liked.  But, like April, it paid off: 13.1% versus 3.5% for the S&P 500.  This brings YTD results to 50.97% for a slightly better than 10% per month average.

But, it also underscores a quandary going forward: close out positions each day, or take a chance on continued manipulation in the overnight markets.  Those who trade eminis versus ETFs can sidestep such issues — an increasingly compelling idea.

Starting and ending the day in cash almost guarantees 4+ trades per day — about 88-92 per month.   I suppose it’s worth it for 10% per month; but, it makes communicating trades to members that much more difficult.  And, it makes a managed account that much more appealing.

The Fine Print:

1. Represents performance of a theoretical portfolio, where SPX is bought or shorted based on signals generated by my research.  Your mileage will vary.
2. Assumes no leverage:  generally 100% long, 100% short or 100% cash.
3. Prices listed reflect the SPX at the time tops/bottoms are called and are believed, but not guaranteed, to be accurate.  Dividends and transaction costs are ignored.
4. MTM = marked to market.
5. Results are since inception of pebblewriter.com on March 22, 2012.
6. Past results are not necessarily indicative of future results.  See Disclosures and Use Agreement for important information.

Only 8 of the 25 Charter Annual Memberships at $1,200 remain.  This is 1/3 off the current annual price of $1,800, which is slated to go to $2,000 after this promotion and will no longer be available after Sep 1.  If you’ve expressed interest but haven’t yet completed your PayPal transaction, tempus fugit.

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Remember Charter Members who subscribe to the Fund when it becomes available will be entitled to fee discounts; and, their unused membership fee to this site will be rebated (quarterly, over one year.) 

Also, if you have a membership expiring in the coming year and wish to extend it through September 2014, you may do so for $100/month.  Just drop us an email or CONTACT US with your wishes and we’ll generate an invoice.  You can check your expiration date HERE.

*  *  *  *  *

Sometimes a late session decline is a device by which market makers separate weak bulls from their money by running stops and/or just plain making them nervous.  And, sometimes it’s a sign of a market losing its grip.

Yesterday marked the 5th instance in this latest rising channel where the market suffered a late day plunge — though yesterday’s managed to return to almost even on the day.  It didn’t really matter so much where the final number was plus or minus.  What mattered was the loss of the purple channel.

The eminis, which already backtested their big purple channel from 1343/Nov 2012, are currently backtesting the midline of a new channel (in white, above) which would be confirmed by a tag of the .25 line or bottom — which is currently around 1580.

SPX was working on its own backtest, with several strong upside targets available in the 1629-1634 range.  But, yesterday’s setback will make those targets more difficult, if not impossible.

We’ll treat this backtest as the real deal unless the markets prove us wrong.  I’ll play the short side on the opening and see if we can’t flesh out the new white channel.  Looks like 1608ish.

UPDATE:  9:35 AM

SPX just tagged the .886 retrace (1604.57 v 1603.97) of the rise from the 28th at the .25 line of the new channel.

I’ll switch to a long position here at 1605 with stops at 1601 just in case.

For swing traders and trend followers, the momentum — and the most obvious path — is clearly on the downside.  But, the bounce north of 1601.06 — which came at a logical support point — keeps the upside case alive.

The bulls now need to push back up through the red .75 line, the white midline, and the red channel top — though the optimistic ones would point out that the rising white channel offers a new means by which to reach new highs.

The dashed red line rising through the chart is our old friend, the trend line from 1994/2003 — the lowest of the three generated by different combinations of tails and real bodies from way back when.  Remember, SPX reversed within 20 points of the highest of the three.

UPDATE:  10:05 AM

SPX is (so far, successfully) testing this morning’s lows.  Note that, even with this morning’s plunge, the IH&S is technically still alive.

But, it should be clear to everyone by now that there are several traditional H&S Patterns from which to choose.  The completed one with the yellow neckline (below) points to 1586.

The larger one with a red neckline that hasn’t yet completed would target closer to 1580.  Both targets are below the lower bound of the rising white channel, so would require that it break down first.

The neckline of the yellow IH&S we’ve been watching has now become resistance — meaning it is likely part of a falling channel I haven’t charted yet.

The upside case is looking weaker by the moment.  And, my gut tells me to go ahead and pull the plug on the bounce. But, this is a holiday week.  The market closes early today (1:00 PM ET) and, in 24 hours, most of America will be OD’d on saccharified and genetically modified starch and Bos primigenius laced with steroids, hormones and antibiotics (beer and burgers.)  What better time to launch a sneak attack on bears?

That’s why I won’t be surprised if, while no one’s watching on Friday, we reach 1638 — the .618 of the 1687 to 1560 correction.

A close today at 1618  — .618 of the decline since 1626 on Monday and the intersection of the falling red channel top and rising white channel midline — would set up a nice looking right shoulder targeting the downside.

But, it would also set up a Crab Pattern with a 1.618 extension at 1640.23, less than two points from the grey .618.  Something to think about…

UPDATE:  12:10 PM

Here we are, nudging 1618.  I’ll take the 13 points on this morning’s long position and go short for any pull back there might be.  Stops at 1620ish.

Coming up, a look ahead.

continued for members… (more…)

NOTE:  Only about half the discounted annual memberships are left.  Many of you have memberships expiring this month [check now.]  If you plan on upgrading/extending or haven’t yet completed your order, don’t forget it’s first come-first served.  

The sale will be announced outside the membership tomorrow if any memberships are left at the discounted price.  This will likely be the last sale before the Fund goes live and memberships to the current website are no longer accepted.

CLICK HERE

Also, I have put together a page describing the basic investment philosophy and strategy underlying this site that some might find interesting.   

CLICK HERE

ORIGINAL POST:  9:15 AM

Everything is going according to plan this morning, with each currency pair approaching their targets from last week.

The dollar is back to the white channel midline where exciting things happen.  The last squirt higher led to 84.595 on May 23, the day after SPX topped out at 1687.

This time, however, there’s a falling purple channel and the .786 Fib line to consider.

A close up reveals DX is also pushing up through the red channel .382 line.

While the EURUSD is approaching the .786 retracement of its rally from the 1.2795 low, the red channel midline and the bottom of the light blue channel.

A close up…

The USDJPY is closing in on our 101.59 target at the .786 Fib.

The e-minis, which back-tested the bottom of their purple channel at the white .500 Fib yesterday, took another run overnight but fell short — reaching only the top of the falling red channel .

We’ll see if SPX has enough juice left to take its own shot.  The key this morning will be pushing through the top of the red channel — at least intra-day — at about 1621.50.

UPDATE:  9:52 AM

SPX reached the red channel and is debating whether to push through or take a breather.

Recall, the cluster of targets we discussed last week includes:

• the gap fill at 1629.22
• the IH&S target at 1631.67
• the red .786 Fib at 1634.10
• the grey .618 at 1638.72

SPX came within 3 points of filling the gap yesterday, but ran into the same channel top and fell back to close at the bottom of the grey channel in the 5th such stop-clearing exercise in a week and the 9th close at or near the daily low in a fortnight.

It also tagged the .500 grey Fib (of 1687-1560) yesterday, where it (so far) reacted less than it did at the red .618.

So, the red pattern is assumed to be the one in charge, with a Gartley Pattern completion at the red .786 (1634.10) the next major Fib target on the radar.

UPDATE:  10:15 AM

A close up shows two smaller patterns also pointing to the 1631-1635 range if SPX can poke through the red channel top.  Note also the presence of the pink .618 here — contributing to the pause.

We’ve had a few pieces of economic news this morning.  First, the Fed is set to vote on Basel III this morning.  While significantly watered down, it could still be construed as a speed bump on the road to global financial domination.

Also, Census released the factory orders survey for May. The managed (a.k.a. seasonally adjusted) version came in slightly higher than expected, at +2.1% versus 2.0% consensus and 1.3% for April.

There is bound to be some concern that the slight beat undermines support for QE (does anything else matter?)

This explains why the less-managed, de-emphasized, and not seasonally adjusted number, at +5.4% month-over-month, is the better number for a change.  Remember the good old days when they lied to make things look better?

UPDATE:  11:25 AM

SPX pushed higher to the pink .786 and is now back-testing the top of the red channel at the .618.  This is where we find out if the upside case is still intact (and how accurately I drew the red channel.)  Since the .618 reaction was so tiny, we should expect more of a pullback — meaning a second/bigger backtest — at the .786 at 1624.

UPDATE:  12:15 PM

SPX is re-testing the red channel top after a more robust reaction at the pink .786.  Note that it has almost retraced to the purple 1.00 at 1620.07 — a nice level from which to base for the push higher today or tomorrow.

UPDATE:  1:15 PM

SPX is slipping toward the red .618 at 1618.34 — also the bottom of the red channel and significant lines on the smaller scale Fibs.  If it doesn’t find support here, the next lower level is a the white .75 channel line at 1616.  The RSI charts show support in this area.

We can expect a couple more shake out attempts before the next push up.  Keep an eye on the RSI channels for context on any move below 1616.

UPDATE:  1:40 PM

SPX slipping below 1616, so nervous types might consider a protective short position here.

The 15 min RSI chart, however, indicates there is support here.

UPDATE:  2:09 PM

It appears as though we’re going to retest the red channel line at the white .786 or 1610 or even the .886 at 1608.  I’m opening a protective short position here at 1615.

UPDATE:  2:29 PM

SPX getting a bounce at the .886, but it’s unclear whether the larger or smaller pattern is in control just yet.  The larger one from 1606 makes for a better fit from a Harmonic standpoint.

Its reversal at the purple .618 (and grey channel bottom) makes for a nice looking Bat Pattern to 1603.97.  But, the red .500 at 1607.26 is two rungs down from the .707 high yesterday at 1626.  I’ll take a stab at a long position here at 1607.23.  Stops at 1606ish.

continued for members… (more…)

Important note:  Late last night I posted about the future of pebblewriter.com.  With the launch of the new Fund fast approaching, I will not be offering any new memberships or renewals after this Sept 1.  However, the site will remain in its present form for members to use through September 2014, and will likely continue as a monthly or weekly digest thereafter.

Since this will likely be the last round of memberships offered,  I’d like to do something special for members before the word gets out.  So, for the next 48 hours (through Wednesday night) I will offer up to 25 Charter Annual Memberships at $1,200 — 1/3 off the current annual price of $1,800.

This is essentially the same popular deal as a few months ago: never a price increase, a discount on fund fees, and rebates on unused membership fees (prorated, paid quarterly) for those who subscribe to the Fund.

Also through Wednesday night, if you have a membership expiring in the coming year and wish to extend it through September 2014, you may do so for $100/month.  Or, if you’ve recently subscribed to a quarterly or semi-annual membership and wish to take advantage of this deal, just let us know and we’ll send an invoice for the difference.  Either way, drop us an email or CONTACT US with your wishes and we’ll generate a Paypal invoice.

After this round, the price of annual memberships will be raised from $1,800 to $2,000 until sales end altogether in September.   Details are available HERE.

*   *   *   *   *   *   *   *

The futures are up nicely this morning, with e-minis currently printing 1608 after trading as low as 1593.25 yesterday.

The dollar has backed off yesterday’s highs, but is till rushing headlong toward some important channel and Fib tests.

We’ll play along on the long side, picking up where we left off Friday where, once again, SPX closed in such a manner as to throw investors off the scent of the prevailing patterns.

UPDATE:  9:39 AM

The key this morning is poking through 1620.07, which was a close enough tag of the red .618 to open up the possibilities of a Gartley, Bat or Crab Pattern.  So far, SPX is content to loiter in the area of a .886 retrace from that high water mark.

The rising red channel was violated at the close Friday.  This marks the 5th day in a row where the most obvious TL from the recent 1560 bottom was violated in the closing 15 minutes of the session (marked with asterisks below.)

Each time except for the last, the market rebounded strongly the following morning.  It’s either some masterful manipulation, or SPX is exhibiting the kind of fragility we would expect if our forecast is to play out — or both.

Economic news this morning include a slightly better than expected Manufacturing ISM Survey.  It’s generally positive (50.9 vs last month’s 49.0 and expectations for 50.5) except for employment — contracting again.

I won’t put up all the Census Construction Spending charts and tables, as they’re available HERE for any data hounds.  The interesting facts I gleaned from the May numbers just released is that, while private residential spending ytd is up 25% versus 2012, private non-residential spending (offices, malls, warehouses, etc.) didn’t even keep up with inflation. Predictably, public spending dropped in nearly every category.

There’s no question that housing activity is picking up.  There is a question as to whether it’s sustainable.  This is May data — long before interest rates spiked.  In my experience, builders will build pretty much any time they have access to capital. So, as long as the mortgage market is semi-healthy, we should continue to see increased activity.  If it starts to falter due to higher rates, it could do a number on these numbers.

SPX just slipped up through Thursday’s high, so we’ll review our near-term expectations.

continued for members… (more…)

I’ve spent the past several days noodling over what I want this website to be when it grows up.  It’s been an interesting past two years, especially since I’ve been doing what I, and most everyone on Wall Street, have always believed was impossible.

I started pebblewriter as a Blogger site on May 2, 2011 because I thought the market was about to top out and it seemed like no one else was talking about it (that was the high for 2011.)   I gained a bit of a following by calling (to the exact day and within 3 points) the 20% crash two months later.

In March, 2012 I converted it to a subscription website — almost on a lark.  But, enough of you joined up that I took it seriously.  I refined my strategies, paid more attention to trade management and began posting trade decisions on the site.

Since then, we’ve hit all the big tops and bottoms and averaged over 10% per month — more than the average hedge fund gained for all of 2012.  It’s been a kick.  Even with the technical hassles, the paperwork, the member lock-outs, etc. I’ve come to really enjoy this old blog and value the relationships with those of you I’ve come to know.

Several months ago, many of you — digging the results but not interested sitting at your computers all day — asked if I’d be interested in running a fund.  A couple of old Wall Street chums even offered to help me launch it.  The idea sort of took off.

Now, with the launch roughly 60 days away, I have to make some tough choices.  I’ve struggled to communicate good information and ideas quickly and effectively enough for day traders while still meeting the needs of swing traders and buy-and-hold types.

This past April was instructive in that: (1) our strategy still generated solid returns (14% v 2% for SPX) in a month of nothing but volatile chop; and (2) the volume of trades involved in generating those returns was too high, especially for swing traders.

This will probably continue to happen at times.  In trending markets, if we nail some big patterns, analogs, etc. we might deliver great returns with a handful of trades.  In choppy or uncertain markets, we might have to choose between low returns or higher trade volume.

In a fund, it probably won’t matter as long as the returns are good.  Judging from the way the list is growing, that seems like a safe bet.  For do-it-yourselfers, I’ve considered having three different types of memberships: a monthly newsletter for buy-and-hold folks, a daily digest for swing traders and a chat room for day traders.

But, after thinking about it all weekend, I believe swing traders and long-term folks would  better off in a well-managed fund — even after fees and even if I performed only half as well as this past 15 months..  And, I’ve decided that running a chat room for day traders would probably chip away at the fund’s value or even cannibalize it.

My plan is to continue running the website as-is through September 2014.  Some members are paid up that far out.  And, as long as I’m running the site for their benefit, I might as well include others.  After that, I’ll probably continue to write a newsletter of some kind (TBD.)

So, this will likely be the very last round of memberships offered.  I want to do something special for members before the word gets out.  So, for the next 48 hours (through Wednesday night) I will offer up to 25 Charter Annual Memberships at $1,200 — 1/3 off the current annual price of $1,800.

This is essentially the same popular deal as a few months ago: never a price increase, a discount on fund fees, and rebates on unused membership fees (prorated, paid quarterly) for those who subscribe to the fund.

Also through Wednesday night, if you have a membership expiring in the coming year and wish to extend it through September 2014, you may do so for $100/month.  Just drop me an email or CONTACT ME with your wishes and we’ll generate a Paypal invoice.

After this round, the price of an annual membership will be raised from $1,800 to $2,000 until they are likely ended all together in September.  One other change: we’ll offer only annual memberships from here on.  If you’ve recently subscribed to a quarterly or semi-annual membership and wish to take advantage of this deal, just let us know and we’ll send an invoice for the difference.

I know some of you won’t be thrilled with this decision.  It pains me to have to do it.  But, I need to get more sanity (and sleep) back into my life.  One way is to stop trying to be all things to all people and focus, instead, on the way I believe I can add the most value.

~pebblewriter

 

p.s.  Look for updates on the fund to go out tomorrow.  Also, we have preliminary results for May and June performance and hope to get them posted in the next day or so.

 

 

 

 

 

 

 

Note to members:  I posted some good charts on VIX early this morning, so check those out if you get the chance.

I’m glad to see more of you signing up for Twitter.  I try very hard to post intra-day trade decisions there, but sometimes there just isn’t enough time.  It will be much easier when the fund is up and running, because all of my trading will be done there.  There’s a Twitter link over to the left of this page if you’d like to sign up

I will have another update on the fund either tonight or tomorrow.  So, if you haven’t signed up for the distribution list yet, CLICK HERE.  You will be asked to affirm that you are an accredited investor, and will need to identify yourself.  It’s not that we’re nosy; it’s something the SEC requires.  The information is never sold or shared with anyone under any circumstances.  Pebblewriter members are the smartest, funniest and best looking investors on the planet.  Why would I share you with anyone?

Last, I’ve been giving a lot of thought to how the website will look after the fund launches.  I’ve wrestled with the existing format, as it’s difficult to accommodate swing traders, day traders, and infrequent traders.  I sometimes get too mired in the intra-day trades for swing-traders taste, and the day traders want more, quicker, set-ups throughout the day — not less.  Look for a new post dedicated to membership issues tomorrow morning.

*  *  *  *  *

The futures are down about 5 points this morning, but might have found support at a channel line and .500 Fib after being turned back by a .618 Fib yesterday.  If they bounce back, however, is it just a backtest of the purple channel from last November?

The EURUSD certainly appears to be backtesting a recently broken channel line, and it appears to have more room on the upside.

SPX, having squandered an excellent chance to complete an IH&S that would take it up to backtest its broken purple channel, is fleshing out the grey channel we theorized would take over.  It just bounced on the .25 line – but after slipping through the key TL (red, dashed) from 1994/2002.

I’ll take the opportunity to short on the backtest if it fails to retake it.

UPDATE:  9:55 AM

It did, so I’m playing the short side — probably to 1598/1600 as we discussed yesterday.  Here’s a better look at what could end up being a flag pattern if the bottom of the grey channel holds.

UPDATE:  10:00 AM

Might be a tad early, but I’ll try a long here at 1602.40.

If 1560-1620 is A and 1600 is B, then C would be at 1660.  The .786 Fib of the slide from 1687 to 1560 is 1660.  Coincidence?  I think not.

As we discussed in the members section yesterday afternoon, a flag gets us back to the .786 or .886 Fib just as easily as the two H&S patterns would have — a little more easily actually.

But, first, SPX will have to slog back up through the TL from 1994/2002, bust out of the falling red channel and deal with the bottom of the purple channel — meaning either a brute force assault (a.k.a. ramp job overnight) or a slow choppy slog higher until the channel bottom reaches the .786 — around mid-July.

If you’re a bull, you have to be a little concerned that yesterday’s moon shot came within 8-12 points of the purple channel but couldn’t close the deal.  If you’re a bear, you’re positively giddy — but know how quickly that feeling can pass.  Me?  I’m a Gemini.

UPDATE:  10:44 AM

SPX has reached the red TL from 1994/2002 again.  A little .786 pullback from 1610-1611 to the intersection of the grey channel bottom and red midline (1603ish) would make for a nicer looking flag pattern.  A failure to retake it would be a sign that we’re falling back to 1586-1593 (always use stops!)

UPDATE:  11:15 AM

SPX poked up through the TL easily enough, and just tagged the grey midline at 1615.64 — very close to a .786 retrace of yesterday’s high.

I’ll take a short-term short position here for a pullback: either a retracement back to the red channel top at 1609, the grey channel bottom at 1605-1605… or possibly much more.

If that sounds a little nebulous, it’s because we’re at another one of those lovely turning points.  I’ll explain further in a moment.

Just want to point out there’s a potential little IH&S in the works that, if it plays out, points to 1631 (a shadow of the purple channel bottom.)  Ideal right shoulder would be a backtest of the red TL around 1610.

This makes stops on the short position around 1616 a very good idea.

Okay, big picture stuff…  the rise from 1560 to 1620 was roughly a .618 retracement of the drop from 1654 to 1560 — the red pattern below.  When we get a significant reversal at a .618 point, it opens up the possibility of a Gartley completing at the .786 (1634 in this case), a Bat at the .886 (1643) or a Crab at the 1.618 (1712.)

Each of those possibilities carries very different implications for both price and time, so we’ll examine them in the context of what currencies and VIX are telling us.

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VIX is a very well-behaved market indicator most of the time.  It often retraces to normal Fibonacci levels.  It follows channels like a champ.  And, its RSI channels are hard to beat.

In fact, VIX RSI channels are one of my favorite tools for determining overall market direction. So, it’s disappointing that, at the moment, they’re a little fuzzy.

VIX recently completed a Bat Pattern on the white grid, only to fall back trough the rising purple midline and red midline.  Re RSI, It has support at the bottom of the rising purple channel and the midline of the red channel.  But, it appears to be not quite there yet.

A breakout of any kind would most likely be a Crab Pattern to the white 1.618  (for starters) at the intersection of the falling red channel top — perhaps as early as 10-12 sessions from today.

But, first, VIX will probably have to tag the bottom or .25 of the purple price channel and the bottom of the purple RSI channel.  In other words, the market is likely to rally after whatever sell-off is planned for tomorrow morning.  But, the rally could be short-lived.

GLTA.

 

 

Another big gap opening on economic data.  We’ll go long on the opening, as the eminis have pushed through a trend line of resistance and indicate we will get the backtest of the purple channel we’ve discussed.

UPDATE:  9:31 AM

SPX just navigated the same TL (red, dashed) on the opening. The keys this morning will be remaining above 1612.45 and pushing through the red .618 Fib at 1618.34.

UPDATE:  9:45 AM

Cleaned up the SPX chart a little…  We should get a backtest of the red channel .75 line and above-mentioned TL at 1618.34 — probably to 1611 or so if it’s able to remain in the purple acceleration channel.  I think it’s worth a short position with tight stops.

This one’s a little tricky, though, as it’s the .618 retrace of the drop from 1654.  The next higher Fib based on 1687 is the grey .500 at 1623.76.  The white .382 (1536-1687) at 16129.44 and the channel bottom itself at 1629-1632 are also in the mix.

UPDATE:  10:02 AM

This might be as good as we’re going to get under the circumstances.  I’ll go full short here at 1617.34 with stops at 1620ish.

As mentioned above, there are plenty of slightly higher targets.  Reaching the bottom of the purple channel would take only 15 more points or 1 FGSU  (Fed Governor Speech Unit.)

But, check out the RSI charts…  The daily, which is always subject to intra-day pushes beyond channel lines, does show potential stiff resistance from both the red TL and the .25 white channel line.

The 60-min similarly shows channel resistance at the top of the yellow channel.  It’s a little less susceptible to excesses (at least those that can be squeezed into 60 min) and often makes its statement at the top of the hour, when peaks/valleys are “in the books.”

Even the 15-min RSI chart shows a turning point that could have some legs.

This leads me back into the discussion of the bigger picture.   We have a lot of noise today:  pending home sales are the best in 6 years, income and spending are up, Dudley is speaking (but neither confirming nor denying), Lockhart’s coming up in a couple of hours, even Powell is getting into the act.

All, including Kocherlakota yesterday, are pushing back on the notion that the punch will be watered down any time soon.  And, all are shocked — shocked, I tell you! — that bond yields have risen as much as they have.

UPDATE:  10:35 AM

I think instead of closing out the short here at 1620, I’ll take an interim long position on any strength through the .500 at 1623.76 — with the idea of riding it up to the channel bottom or gap close at 1629.22.

UPDATE:  12:30 PM

SPX just tagged the bottom of the channel at 1612.  I’ll close the short here and revert back to a long position with stops at 1609ish.  I believe it’s more likely to break the channel and go lower, but I’ll let the market decide.

Why lower?  The 15-min RSI chart suggests a back test of the intersecting yellow and purple channel lines (at the *) and then a bigger drop.  Maybe the red .500 at 1607.26?  Looks like it might be the intersection of the bottom of the purple channel and the yellow midline — and .618 to .500 pullbacks are commonplace in a tightly managed mild-mannered market like this.

But, hey, Fed Govs are out roaming the streets.  Anything could happen.

1615.25 ought to do it…next stop 1607?  Next lower support would be 1596-1600.  Full short again.

UPDATE:  1:27 PM

Looks like I was either early… heading up to tag 1617.68 or 1618.33 (the .707 and .786 of 1620 — 1611)… or just plain wrong (about to complete a little IH&S that targets 1621 and probably a subsequent IHS to target the gap close at 1629.22.)

Or, the sneaky version:  run it up just past the top of the purple channel (clearing out the shorts), reverse at the .786 or .886 (get them back in) and zip back to tag the purple midline at 1613 (just below the rising channel bottom to clear out the longs, shorts double down.)  Then back up to 1618+ to complete the IH&S — taking extra care to close on the neckline so no one knows what might happen overnight.  Gap it in the morning to close the 1629 gap, then cut everyone off at the knees with a plunge to ???

That’s what I would do if I were a ruthless master of the universe and wanted to bag a few extra thou for the weekend.  So, I’ll assume that’s what the MM’s are planning.  Something like this:

Having already been sucked into it, I’ll stick with the short position until it reverses down at the right shoulder (1612-16113) then go long again.

UPDATE:  2:10 PM

That should just about do it pricewise.  Long again here at 1613.29.  Stops @ 1611ish.  It’s a little early still if they’re going to close it on the neckline.  So, possibly a little lower, or just a bunch of chop between here and 4PM.

UPDATE:  3:40 PM

Cruising into the home stretch.  For folks who, like me, watch channels, this are tough days.  The original purple channel has been completely obliterated.  Since it has broken down, it’s a sell signal, right?  Not necessarily.

Remember in Channel Tilting a few days ago we discussed how when one channel rolls over, another is usually there to take charge.  Here’s the likely replacement for the purple channel, shown below in grey.

We’re bound to dip below the midline once or twice before the close for good measure.  And, there’s still a good possibility that the market tanks from here.  The right shoulder of the IHS is looking rather elongated. A flag at 1608 would accomplish virtually the same thing — but more of it.  Keep those stops where you’re comfortable.

Suppose SPX goes up and tags the neckline at 1617ish at the close.  Then what?  We talked about the purple channel tag and gap close up at 1629.22.  Is that all there is to look forward to?  I’ve been doing some charting today, and have come up with a reasonable scenario that differs a bit from our previous forecast.

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